MERRILL LYNCH
MIDDLE EAST/
AFRICA FUND, INC.
FUND LOGO
Quarterly Report
August 31, 1995
<PAGE>
Officers and Directors
Arthur Zeikel, President and Director
Donald Cecil, Director
Edward H. Meyer, Director
Charles C. Reilly, Director
Richard R. West, Director
Terry K. Glenn, Executive Vice President
Norman R. Harvey, Senior Vice President
Donald C. Burke, Vice President
Grace Pineda, Vice President and
Portfolio Manager
Gerald M. Richard, Treasurer
Michael J. Hennewinkel, Secretary
Custodian
The Chase Manhattan Bank, N.A.
Global Securities Services
4 MetroTech Center, 18th Floor
Brooklyn, NY 11245
Transfer Agent
Merrill Lynch Financial Data Services, Inc.
Transfer Agency Mutual Fund Operations
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
(800)637-3863
Investing in emerging market securities involves a number of risk
factors and special considerations, including restrictions on
foreign investments and on repatriation of capital invested in
emerging markets, currency fluctuations, and potential price
volatility and less liquidity of securities traded in emerging
markets. In addition, there may be less publicly available
information about the issuers of securities, and such issuers may
not be subject to accounting, auditing and financial reporting
standards and requirements comparable to those to which US companies
are subject. Therefore, the Fund is designed as a long-term
investment for investors capable of assuming the risks of investing
in emerging markets. The Fund should be considered as a vehicle for
diversification and not as a complete investment program. Please
refer to the prospectus for details.
This report is not authorized for use as an offer of sale or a
solicitation of an offer to buy shares of the Fund unless
accompanied or preceded by the Fund's current prospectus. Past
performance results shown in this report should not be considered a
representation of future performance. Investment return and
principal value of shares will fluctuate so that shares, when
redeemed, may be worth more or less than their original cost.
<PAGE>
Merrill Lynch
Middle East/Africa
Fund, Inc.
Box 9011
Princeton, NJ
08543-9011
MERRILL LYNCH MIDDLE EAST/AFRICA FUND, INC.
Asset Allocation as
A Percentage* of
Net Assets as of
August 31, 1995
A map illustrating the following percentages:
Ghana 1.7%
Morocco 2.9%
South Africa 48.5%
Botswana 1.3%
Turkey 10.1%
Israel 16.0%
Zimbabwe 3.9%
[FN]
*Total may not equal 100%.
DEAR SHAREHOLDER
<PAGE>
During the three-month period ended August 31, 1995, total returns
for Merrill Lynch Middle East/Africa Fund, Inc.'s Class A, Class B,
Class C and Class D Shares were +3.92%, +3.65%, +3.65% and +3.83%,
respectively. The unmanaged Morgan Stanley Capital International
Indexes for the largest equity markets in the region--Israel, South
Africa and Turkey--registered returns of +12.3%, +2.1% and -17.7%,
respectively. The Fund's performance can be attributed to
significant exposures in Israeli equities and South African bonds
and gold stocks, which offset the negative impact from the Fund's
exposure to Turkish equities. (Investment results shown do not
reflect sales charges, and would be lower if sales charges were
included. Complete performance information, including aggregate
total returns, can be found on pages 4 and 5 of this report to
shareholders.)
Investment Activities
Since our last report to shareholders, we added significantly to our
Israeli stock investments and increased our South African equities
by purchasing several gold mining stocks. We also purchased South
African bonds and added to our Zimbabwe equity position. We added
selectively to our investments in Turkish equities while taking
profits in Turkish treasury bills. By the end of August, the
Fund's cash position decreased from 52.5% of net assets at the
outset of the August quarter to 12.5%.
One of the Fund's recent equity purchases was Koor Industries Ltd.,
a diversified holding company in Israel. The company is Israel's
largest conglomerate with interests in electronics, steel,
chemicals, telecommunications, energy and food. The company's stock
gives the Fund broad exposure to the Israeli economy.
Another of the Fund's recent equity purchases is Kinross Mines Ltd.,
a gold mining company in South Africa. Among gold stocks, this
stock's valuation is extremely attractive based on the company's
market capitalization to gold production. Given our expectations of
currency depreciation in the South African Rand, we believe
exporters such as South African gold producers should benefit.
Further, we expect the recent wage settlement to enable Kinross to
increase its gold production. In our opinion, the lack of foreign
buying interest and a slumping gold price have made these stocks
attractive.
Recently we have also added significantly to our equity position in
Delta Corporation, a brewer in Zimbabwe. The country has been
suffering from a severe drought which has negatively impacted its
agricultural output, the backbone of the Zimbabwe economy. During
the next crop season, which starts this November, it is reasonable
to expect a more normal rainy season. With 80% of Zimbabwe's
population tied in some fashion to agriculture, an improved
agricultural environment would increase disposable income, thereby
encouraging sales of consumer products such as beer.
<PAGE>
Investment Outlook
Middle East and African securities markets could perform well in the
coming months. We continue to believe that the Israeli market has
one of the brightest near-term prospects among the markets in which
our Fund invests, importantly related to Israel's improving economic
outlook. The August quarter's gross domestic product (GDP) growth of
6.5% annualized was above investors' expectations. With the
country's inflation rate now under 9%, the Israeli equity market was
one of the better-performing markets during the August quarter. This
market is under-owned by foreigners, and we expect foreign capital
inflows to increase for the rest of the year. In general, Israeli
companies posted strong second quarter earnings. The foundation for
further interest rate declines is still in place. While Israel's
improving economic progress has fueled this year's rally in the
equity market, political risk remains high. Given that 1996 will
be an election year, we are closely monitoring the political
developments regarding Israel's settlement with the Palestine
Liberation Organization. Continued progress with the peace process
between Israel and Syria would also help reduce the political risk.
Since Israel spends over 10% of its GDP on defense, realizing a
"peace dividend" could provide further upside potential to the
equity markets, in our opinion.
We are becoming less cautious about investing in Turkey. Rising
political and currency risks have brought down stock prices. As the
Turkish equity market declines, we are finding more attractive
investments and are encouraged by the improvement in industrial
production which provides further evidence of an economic recovery.
The risks which we are monitoring pertain to the overvaluation of
the Turkish lira and the prospects for early elections.
We maintain our positive view on the financial markets in the
African countries, but our outlook on the currency of South Africa
has become more cautious. South Africa's economic growth has slowed,
posting only a 1% increase for the first half of 1995 relative to a
5.5% real GDP increase in the second half of 1994. The deceleration
of economic growth, a stronger currency and a recent hike in
short-term interest rates have all contributed to a reduction in the
rate of inflation. As a result, long-term interest rates began to
fall. Given this economic environment, foreign capital inflows
increased dramatically, leading to a rally in South African bond
prices. On the negative side, however, South Africa's budget and
current account deficits remain problematic. South Africa is now
depending on "hot money" to fund its deficits. We have become more
concerned over the value of the South African Rand and will select
our investments accordingly.
<PAGE>
In Conclusion
Our outlook for investments in the Middle East/Africa region is
positive, and we will continue to carefully research new investments
for the Fund. We thank you for your investment in Merrill Lynch
Middle East/Africa Fund, Inc., and we look forward to reviewing
our outlook and strategy with you in our upcoming annual report
to shareholders.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Grace Pineda)
Grace Pineda
Vice President and Portfolio Manager
October 3, 1995
PERFORMANCE DATA
About Fund
Performance
<PAGE>
Investors are able to purchase shares of the Fund through the
Merrill Lynch Select Pricing SM System, which offers four pricing
alternatives:
* Class A Shares incur a maximum initial sales charge (front-end
load) of 5.25% and bear no ongoing distribution or account
maintenance fees. Class A Shares are available only to eligible
investors.
* Class B Shares are subject to a maximum contingent deferred sales
charge of 4% if redeemed during the first year, decreasing 1% each
year thereafter to 0% after the fourth year. In addition, Class B
Shares are subject to a distribution fee of 0.75% and an account
maintenance fee of 0.25%. These shares automatically convert to
Class D Shares after 8 years.
* Class C Shares are subject to a distribution fee of 0.75% and an
account maintenance fee of 0.25%. In addition, Class C Shares are
subject to a 1% contingent deferred sales charge if redeemed within
one year of purchase.
* Class D Shares incur a maximum initial sales charge of 5.25% and
an account maintenance fee of 0.25% (but no distribution fee).
Performance data for all of the Fund's shares are presented in the
"Aggregate Total Return" and "Recent Performance Results" tables
below and on page 5. The "Recent Performance Results" table shows
investment results before the deduction of any sales charges for all
of the Fund's shares for the since inception (December 30, 1994) and
3-month periods ended August 31, 1995. All data in this table assume
imposition of the actual total expenses incurred by each class of
shares during the relevant period.
None of the past results shown should be considered a representation
of future performance. Investment return and principal value of
shares will fluctuate so that shares, when redeemed, may be worth
more or less than their original cost. Dividends paid to each class
of shares will vary because of the different levels of account
maintenance, distribution and transfer agency fees applicable to
each class, which are deducted from the income available to be paid
to shareholders.
Aggregate
Total Return
% Return Without % Return With
Sales Charge Sales Charge**
<PAGE>
Class A Shares*
Inception (12/30/94)
through 6/30/95 +10.20% +2.33%
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Inception (12/30/94)
through 6/30/95 +9.60% +3.41%
[FN]
*Maximum contingent deferred sales charge is 4% and is reduced to 0%
after 4 years.
**Assuming payment of applicable contingent deferred sales charge.
% Return % Return
Without CDSC With CDSC**
Class C Shares*
Inception (12/30/94)
through 6/30/95 +9.60% +6.41%
[FN]
*Maximum contingent deferred sales charge is 1% and is reduced to 0%
after 1 year.
**Assuming payment of applicable contingent deferred sales charge.
% Return Without % Return With
Sales Charge Sales Charge**
Class D Shares*
Inception (12/30/94)
through 6/30/95 +10.00% +2.14%
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
<PAGE>
<TABLE>
Recent
Performance
Results*
<CAPTION>
Since Inception+++ 3 Month
8/31/95 5/31/95 12/30/94++ % Change % Change
<S> <C> <C> <C> <C> <C>
Class A Shares $11.14 $10.72 $10.00 +11.40% +3.92%
Class B Shares 11.07 10.68 10.00 +10.70 +3.65
Class C Shares 11.07 10.68 10.00 +10.70 +3.65
Class D Shares 11.12 10.71 10.00 +11.20 +3.83
Class A Shares-Total Return +11.40 +3.92
Class B Shares-Total Return +10.70 +3.65
Class C Shares-Total Return +10.70 +3.65
Class D Shares-Total Return +11.20 +3.83
<FN>
*Investment results shown do not reflect sales charges; results
shown would be lower if a sales charge was included.
++Commencement of Operations.
+++The Fund commenced operations on 12/30/94.
</TABLE>
PORTFOLIO INFORMATION
As of August 31, 1995
Ten Largest Holdings Percent of
(Equity Investments) Net Assets
Driefontein Consolidated Ltd. (ADR) 5.1%
South African Breweries Limited 4.0
Kinross Mines Ltd. 3.5
South Africa Iron &Steel Industrial Corp., Ltd. 3.3
Delta Corporation 3.0
Bank Hapoalim Ltd. 3.0
Koor Industries Ltd. 2.9
Beatrix Mines Ltd. 2.9
Malbak Ltd. (GDR) 2.8
Turk Siemens Kablo Ve Elektrik Sanayii A.S. 2.7
<PAGE>
Percent of
Ten Largest Industries Net Assets
Mining 17.5%
Retail 11.5
Banking 8.3
Multi-Industry 7.1
Merchandising 4.6
Beverages 4.0
Steel 3.3
Beverage & Tobacco 3.0
Engineering & Construction 2.9
Industrial Components 2.7
EQUITY PORTFOLIO CHANGES
For the Quarter Ended August 31, 1995
Additions
Africa--Israel Investments Ltd
American Israeli Paper Mills Ltd.
Bank Hapoalim Ltd.
Bank Leumi Israel
Beatrix Mines Ltd.
Blue Square Stores
Driefontein Consolidated Ltd. (ADR)
Erciyas Biracilik Ve Malt Sanayii A.S.
Kinross Mines Ltd.
Koor Industries Ltd.
Malbak Ltd. (GDR)
Randfontein Estates Gold Mining Co. Witwatersrand Ltd.
Teljoy Holdings Ltd.
Western Areas Gold Mining Company Ltd. (ADR)
Western Areas Gold Mining Company Ltd. (Ordinary)
Deletions
Dardanel Onentas Gida A.S.
PECIsrael Economic Corp.
Rembrandt Group Ltd.
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS
<CAPTION>
Shares Held/ Percent of
AFRICA Industries Face Amount Investments Cost Value Net Assets
<S> <S> <C> <S> <C> <C> <C>
Botswana Multi-Industry 232,000 Sechaba Investment Trust $ 190,492 $ 152,151 1.3%
Total Investments in Botswana 190,492 152,151 1.3
Ghana Health & Personal Care 85,000 Unilever Ghana Ltd. 62,559 58,407 0.5
Multi-Industry 723,795 Guiness Ghana Ltd. 132,915 120,132 1.1
Tobacco 70,000 Pioneer Tobacco Co. Ltd. 5,081 6,971 0.1
Total Investments in Ghana 200,555 185,510 1.7
Morocco Banking 5,000 Banque Marocaine du Commerce
Exterieure 221,372 192,778 1.7
Building & Construction 2,000 Groupe Omnium Nord Africain 89,278 76,878 0.7
Building Materials 2,000 Les Ciments de l'Oriental 87,576 59,639 0.5
Total Investments in Morocco 398,226 329,295 2.9
South Africa Beverages 14,700 South African Breweries Limited 394,547 446,246 4.0
Foreign Government ZAL 4,700,000 South African Bond, 12% due
Obligations 2/28/2005 997,096 1,053,371 9.4
Mining 37,000 Beatrix Mines Ltd. 298,396 326,337 2.9
38,800 Driefontein Consolidated Ltd.
(ADR)(a) 570,167 572,300 5.1
38,600 Kinross Mines Ltd. 412,446 395,870 3.5
34,700 Randfontein Estates Gold
Mining Co. Witwatersrand Ltd. 250,019 223,014 2.0
11,500 Western Areas Gold Mining
Company Ltd. (ADR)(a) 164,189 176,813 1.6
17,000 Western Areas Gold Mining
Company Ltd. (Ordinary) 226,873 266,170 2.4
----------- ----------- ------
1,922,090 1,960,504 17.5
<PAGE>
Multi-Industry 52,174 Malbak Ltd. (GDR)(b) 300,000 318,261 2.8
Retail 110,000 Teljoy Holdings Ltd. 192,631 203,063 1.8
ZAL 4,000,000 Transnet Ltd., 15% due
10/01/1995 986,520 1,093,942 9.7
----------- ----------- ------
1,179,151 1,297,005 11.5
Steel 321,900 South Africa Iron & Steel
Industrial Corp., Ltd. 370,954 369,747 3.3
Total Investments in
South Africa 5,163,838 5,445,134 48.5
Zimbabwe Beverage and Tobacco 217,000 Delta Corporation 290,655 338,965 3.0
Real Estate 215,000 Hippo Valley Estates 76,846 101,996 0.9
Total Investments in Zimbabwe 367,501 440,961 3.9
Total Investments in Africa 6,320,612 6,553,051 58.3
MIDDLE
EAST
Israel Banking 194,852 Bank Hapoalim Ltd. 309,137 331,992 3.0
173,000 Bank Leumi Israel 204,553 245,350 2.2
----------- ----------- ------
513,690 577,342 5.2
Engineering & 3,603 Koor Industries Ltd. 301,578 331,676 2.9
Construction
Health & Personal Care 5,600 Teva Pharmaceutical Industries
Ltd. (ADR)(a) 199,850 212,100 1.9
Merchandising 37,100 Blue Square Stores 201,555 222,641 2.0
Multi-Industry 32,300 Ampal-American Israel Corp.
(ADR)(a) 196,639 216,006 1.9
Paper & Forest 1,845 American Israeli Paper Mills
Products Ltd. 98,685 96,002 0.8
1,800 American Israeli Paper Mills
Ltd. (ADR)(a) 97,251 95,175 0.8
----------- ----------- ------
195,936 191,177 1.6
<PAGE>
Real Estate 41 Africa-Israel Investments Ltd. 49,411 53,400 0.5
Total Investments in Israel 1,658,659 1,804,342 16.0
Turkey Automobiles 560,000 Tofas Turk Otomobil Fabrikasi
A.S. 126,768 85,096 0.8
Banking 1,724,000 Turkiye Garanti Bankasi A.S. 272,906 154,313 1.4
Brewery 22,300 Erciyas Biracilik Ve Malt
Sanayii A.S. (ADR)(a) 299,935 289,900 2.6
Industrial 1,093,334 Turk Siemens Kablo Ve Elektrik
Components Sanayii A.S. 206,649 301,555 2.7
Merchandising 267,000 Migros Turk A.S. 197,259 294,567 2.6
Total Investments in Turkey 1,103,517 1,125,431 10.1
Total Investments in the
Middle East 2,762,176 2,929,773 26.1
SHORT-TERM Face
SECURITIES Amount
Commercial Paper* US$ 545,000 General Electric Capital Corp.,
5.82% due 9/01/1995 545,000 545,000 4.9
US Government & 350,000 Federal Home Loan Mortgage
Agency Obligations* Corporation, 5.65% due 9/25/1995 348,682 348,682 3.1
500,000 Federal National Mortgage
Association, 5.65% due 9/01/1995 500,000 500,000 4.5
----------- ----------- ------
848,682 848,682 7.6
Total Investments in
Short-Term Securities 1,393,682 1,393,682 12.5
<PAGE>
Total Investments $10,476,470 10,876,506 96.9
===========
Other Assets Less Liabilities 352,674 3.1
----------- ------
Net Assets $11,229,180 100.0%
=========== ======
Net Asset Class A--Based on net assets of $592,958 and
Value: 53,214 shares outstanding $ 11.14
===========
Class B--Based on net assets of $8,089,287 and
730,961 shares outstanding $ 11.07
===========
Class C--Based on net assets of $1,086,213 and
98,149 shares outstanding $ 11.07
===========
Class D--Based on net assets of $1,460,722 and
131,309 shares outstanding $ 11.12
===========
<FN>
*Commercial Paper and certain US Government & Agency Obligations are
traded on a discount basis; the interest rates shown are the
discount rates paid at the time of purchase by the Fund.
(a)American Depositary Receipts (ADR).
(b)Global Depositary Receipts (GDR).
</TABLE>
